How & Why To Set Up an LLC: Should You Start an LLC for Your Small Business?

We will look at how to set up a limited liability corporation or LLC.

Since the Great Resignation spurred by the pandemic, the exponential growth of artificial intelligence, and the extensive reorganization of technology companies, many workers have realized that one job and source of income is unreliable.

The stock market is unpredictable. The political atmosphere is tense. But the one thing most people are sure of is that costs are rising and things are changing. Fast.

We need to become nimble and respond to the unpredictable.

The beauty of technology, working from home, and unconstrained working hours is that multiple income streams have become more accessible.

We have seen many clients starting their dream businesses or using the cash cushion they’ve been sitting on to start a side hustle after official work hours.

So when you first think of starting a new business, there are many advantages an LLC can offer you.

Why Should You Set up An LLC for Your Small Business

Limited Liability – This business structure limits the personal liability of owners. Your personal assets – your home, bank accounts, and vehicles won’t be at risk if you’re sued or declare bankruptcy. This is especially important if you are in a high-risk business such as food and beverage, healthcare, or finance.
Pass-through taxation – Profits and losses are reported on a member’s personal tax return. The member will not be taxed twice but still must pay self-employment tax contributions for Medicare and Social Security.
The succession of your business – If you are a sole proprietor and stop working out of choice, disability, or passing away, your business ceases to exist. With an LLC, you can stipulate if you want your business to be inherited by your children or employees and how you want the assets to be distributed.
Credibility – do you want your future investors, customers, and partners to take you seriously?

Setting up your LLC is pretty straightforward.

Unfortunately, many business owners need to realize these protections to their detriment. We have seen several first-time business owners stumble and trip in this process only to have one of their first customers sue them or have disputes with member partners and need help figuring out what to do.

So we’re breaking it down to make it as easy as possible for you.

Business Owners want to test the waters with their product or service before making it ‘official.”

Here are a few other reasons business owners don’t start LLCs and need help understanding the importance of creating a separate entity.

Reason #1 – I’m just starting out and don’t even have my first customer
Reason #2 – My business is going to grow rapidly and I want to file in the state where I can pay the lowest taxes
Reason #3 – It’s so complicated for my small business

How to set up your LLC

Here’s how to set up your LLC so you can protect your assets from the get-go, minimize taxes and make it formal in these easy-to-follow steps:

Step 1: Choose the name of your LLC.

Choose a name that suits your personality, product, service, or brand. Many states, including New Jersey, require an identifier at the end of the name, such as LLC, LLC, or Limited Liability Company.

If there is another company with the name you want, tough luck. You’ll have to pick another one.

**Don’t set up your LLC in your own name**

Step 2: Establish a Registered Agent.

You can have an individual person or a registered commercial agent. A registered agent accepts legal and tax documents on your behalf. A registered agent must have a physical address in the state where the LLC is registered (not a PO Box).

We recommend that most members appoint a registered commercial agent to appropriately receive and handle these time-sensitive documents.

Step 3: File Articles of Organization

These are the formation documents for your LLC which are filed with the Secretary of State’s Office.

The most common details in the documents are:

Business Name
Business Address
Purpose of your Business
Contact Information of Registered Agent
How will the LLC be managed

Filing fees vary by state, and once it is approved, you will receive a certificate proving the validity of your LLC so that you can obtain an Employer Identification Number (EIN) and open a business bank account. Some states, such as New York, may require you to publish a notice in the local newspaper stating the formation of your LLC.

Step 4: Decide if your LLC is member-managed or manager-managed

Member-managed is when all the business owners, no matter their ownership percentage, have a say in the day-to-day management of the business.

Manager-managed is when the owner hires someone else to manage the business’s everyday operations.

Step 5: Create an Operating Agreement

This a crucial step to take, especially for multi-member LLCs. It can put in writing the roles of all the members, how profits and losses are split, and what happens if one member can no longer work in the business.

Most businesses start with positive intentions, but reality only sets in when you start working in your business. You may find members of your LLC not pulling their weight or swindling funds. An operating agreement tells you exactly how to get out of the business in these situations without having a nasty battle in court.

Step 6: Keep your LLC in Good Standing Condition

Depending on the state you file in, you may need to file reports and pay the necessary fees periodically. This proves that your LLC is still authorized to continue business in the state.

These simple steps may seem complicated, but most people can complete this in a few days. It may take a few days to weeks for your LLC to get approved.

You can use an attorney your state or several online options such as ZenBusiness, IncFile, and LegalZoom to assist with the formation.

Launching a new business is an exciting time. It’s better to dot all the I’s and cross all the T’s to prevent headaches down the road. Each state may have nuanced requirements, so please check with the state you file in. When starting an LLC, there is a lot to consider, from liability, taxes, business structure, and management. Contact your financial advisor, accountant, or attorney if you have any questions.

Adviso Wealth is dedicated to working with people just like you. We want to give you the clarity and confidence you need to achieve your personal and financial goals.

To learn more, visit advisowealth.com or email sweta@demo.advisowealth.com

Disclaimer

All written content is for information purposes only. Opinions expressed herein are solely those of Adviso Wealth, unless otherwise specifically cited. Material presented is believed to be from reliable sources and no representations are made by our firm as to another parties’ informational accuracy or completeness. All information or ideas provided should be discussed in detail with an advisor, accountant or legal counsel prior to implementation.